Execution-only, advisory and discretionary services compared

If you are deciding how to invest, the real choice is how much of the decision you keep and how much you hand over. Execution-only means you decide and the firm carries out your instructions. Advisory means an adviser recommends and you agree. Discretionary means a manager decides for you. The more of the decision you hand over, the more it usually costs.

The cost gap is wide. The Financial Conduct Authority (FCA) puts the average initial advice charge at 2.4% of the amount invested, with 0.8% a year for ongoing advice, or 1.9% a year once underlying product and portfolio charges are included¹. Advisers can also charge an hourly rate, and the average is £150 an hour². Execution-only services carry no advice charge at all, but you carry the decision.

Whichever route you take, the same protections sit underneath: advisers must be registered with the FCA, must agree their charges with you up front, and complaints can go to the Financial Ombudsman Service once the firm has had a chance to respond³. What changes is where that protection stops.

What execution-only, advisory and discretionary mean

The three labels describe who makes the decision, not how good the outcome is.

Execution-only is a sale where you buy without receiving advice. The firm takes your instruction and carries it out. The rules are explicit that this is a deliberate position: execution-only sales are only provided where the customer has been warned about the implications of proceeding without advice, or where the customer has rejected advice which has been given, and has specifically instructed the firm that they wish to do so⁷. For equity release there is a further condition: the firm must not enter into or arrange an execution-only sale unless the customer has rejected the advice given, identified the particular transaction they wish to purchase, been informed in a durable medium that they will not benefit from the protection of the rules on assessing suitability, and confirmed in writing that they are making a positive election to proceed⁸.

Advisory means a personalised recommendation. Advice is a personalised recommendation and can only be provided by Financial Conduct Authority regulated firms on the Financial Services Register⁹. You keep the final decision, but you are relying on the adviser's judgement about suitability.

Discretionary means you hand over the day-to-day decisions. The manager buys and sells within an agreed mandate without asking you each time. The FCA's rules recognise this arrangement in specific places, for example where a retail client has given a discretionary investment manager or a financial adviser permission to execute investment decisions covering more than 50% of a drawdown fund¹⁰.

The distinction matters most when something goes wrong, because it determines what you can complain about and what you can recover.

Execution-only: you decide, the firm carries out your instructions

Execution-only is the cheapest route because you are not paying anyone for a judgement. You choose the fund or share, the platform processes the deal, and the platform's own charges apply. Those charges are a separate subject: see investment platform fees and charges and dealing charges.

What you give up is the suitability assessment. Nobody checks whether the investment fits your circumstances, and nobody is liable for the choice. The ombudsman is blunt about this. An 'execution-only' sale where you buy a plan without receiving advice, and where it believes you understood or should have understood that this is what you were doing, is unlikely to result in an upheld complaint¹¹.

There are still duties on the firm. In the mortgage market, for example, where an execution-only sale relies on customer-provided information, the firm must inform the customer, clearly and prominently, that the customer has the right to request an illustration for any regulated mortgage contract which the firm is able to offer the customer⁷. Those are disclosure duties, not advice.

Execution-only suits people who know what they want and are content to own the outcome. It does not suit anyone who wants a second opinion on whether a decision is sensible.

Execution-only costs least, discretionary costs most

The cost ladder runs in the same order as the responsibility.

At the bottom, execution-only: platform and dealing charges only, with no advice fee. In the middle, advisory: a charge for the recommendation, whether as a percentage, a fixed fee, an hourly rate or a retainer. At the top, discretionary management: an ongoing management charge for someone to run the money, on top of the underlying product charges.

The FCA's averages give the shape of the advisory tier. Initial advice averages 2.4% of the amount invested, and ongoing advice averages 0.8% a year, rising to 1.9% a year once underlying product and portfolio charges are factored in¹. Advisers frequently charge a percentage of the assets they advise on, which could be one or two per cent¹².

The cash amounts matter more than the percentages on small pots. Investing £250,000 and receiving ongoing advice about it costs £14,809 over five years, made up of £5,036 upfront and £9,773 ongoing¹. On a much smaller sum, a percentage charge produces a much smaller cash figure, but a minimum fee can wipe out the advantage.

What an adviser charges: 2.4% initial and 1.9% a year on average

Advisers must agree up front how much you will be charged for their services, when you will be charged and how payments will be made to them¹. That rule applies to both independent financial advisers and restricted financial advisers².

The charging methods are not limited to percentages. Advice can be charged as an hourly rate, a set fee according to the work involved, a monthly retainer, or a percentage of the money invested³. The average hourly rate is £150 an hour². The overall cost of financial advice can vary from £500 to £5,000 or more depending on the adviser and the type of advice¹².

For pensions, the FCA puts the average initial charge of advice at 2.4% of the amount invested¹³. Independent financial or pensions advisers usually charge for giving advice¹⁴.

One allowance is worth knowing about if you have a defined contribution pension. The Pensions Advice Allowance is available at any age, but can only be used by people who have a defined contribution pension¹.

Independent or restricted: the type of advice you get

Independent and restricted are not quality labels. They describe the range of the market an adviser can look at.

A restricted adviser may only recommend a limited range of investments, or investments from just one provider¹². An independent adviser can consider the whole market. The FCA's own description of the post-review landscape set out independent advice, restricted advice (including simplified advice services) and basic advice about stakeholder products¹⁵.

Before you engage anyone, the adviser must tell you whether the advice is independent or restricted, the level of advice you will receive, and how much you will have to pay for the advice³. If the advice is restricted, the adviser should tell you how it is restricted³.

There is a useful boundary to understand. Recommendations given incidentally in a regulated professional activity, or by an insolvency practitioner managing existing debt, or by non-commercial public or voluntary debt advisory services, are not advisory services in the regulated sense¹⁶. Free guidance services sit outside the regulated advice regime too: Which? Money 1-to-1 guidance is impartial and does not give regulated financial advice or recommend particular products or providers¹⁷.

For a side-by-side treatment of the two regulated models, see independent vs restricted financial advisers.

Checking an adviser: FCA register, qualifications and fees agreed up front

Three checks cover most of the risk.

The register. You can check whether a provider or adviser is authorised by the PRA or FCA on the FCA register¹⁸. Search the Financial Conduct Authority register using your adviser's firm reference number for the most accurate results¹⁹. If the FCA search results show the adviser's status as 'authorised', the Financial Services Compensation Scheme (FSCS) may be able to compensate you if they fail¹⁹. It is also worth finding out whether the particular activity the firm is carrying out for you is regulated by the Prudential Regulation Authority or the FCA, because that determines what protection applies²⁰.

Qualifications. All financial advisers should be registered with the FCA³. All financial advisers must hold Level 4 or above of the national Qualifications and Credit Framework, and advisers holding a Statement of Professional Standing have signed up to a code of ethics and completed at least 35 hours of professional training each year³. Advisers are regulated by the FCA and must adhere to strict codes governing their activities, and can be held personally responsible for the advice that they give²¹.

Fees. Both independent and restricted advisers must agree up front how much you will be charged, when you will be charged and how payments will be made to them². Advisers must charge you directly for their advice and are not allowed to accept commission, which could influence the products they recommend¹². Advisers are no longer paid by commission³.

Where your protection ends with execution-only and AI tools

Protection follows the regulated activity, not the label on the service.

With execution-only, the firm's duties are about disclosure and correct execution, not suitability. The ombudsman has said it is unlikely to uphold a complaint about an execution-only sale where you bought a plan without advice and understood that is what you were doing¹¹. The same reasoning appears in its savings endowment guidance¹¹.

With AI tools, the position is starker. The FCA has warned that AI-generated financial information falls outside its regulation and protection schemes, after research showed widespread use of AI tools by inexperienced investors²². Data protection law gives you a separate right: not to be subject to a decision that is based solely on automated processing if the decision affects your legal rights or other equally important matters²³. Decisions based solely on automated processing are allowed only if they are necessary for the purposes of a contract between you and the organisation, authorised by law, or based on explicit consent²³. That is a right about how decisions are made about you, not a promise that an AI recommendation was suitable.

The FSCS position on advice is narrow and worth stating plainly. The adviser must have gone out of business for the FSCS to be able to help, and it must have been regulated by the Financial Conduct Authority at the time it gave the advice⁶. For pension transfers specifically, the same condition applies⁶. For more detail, see does FSCS protect financial advice?.

Complaints and the Financial Ombudsman Service

The ombudsman is operationally independent of the regulator while following the rules in the FCA handbook⁴. It can only investigate complaints against regulated firms⁵, and it can only look at complaints about services that are regulated by the FCA²⁴.

You can bring a complaint if you feel you were given the wrong advice by an adviser or firm that is regulated by the FCA²⁵. The ombudsman only looks at complaints the business has had an opportunity to deal with first, and consumers can come to it if they are unhappy with the decision or the business does not respond within the time limits²⁴. If one or both sides disagree with the investigator's view, the complaint can be referred to an ombudsman who takes a fresh look, including new evidence⁴.

For pension transfers, the common complaints are specific: an adviser who did not check your attitude to risk or your capacity for loss, who recommended unsuitable investments, or who advised transferring workplace pension benefits with the loss of employer contributions or guaranteed final salary or defined benefit benefits²⁵.

The ombudsman's approach to suitability is consistent across products. On interest-only mortgages it decides whether you received advice, and if so, whether it was suitable, including advice about a repayment plan²⁶. On valuations and surveys it can only look at complaints about things the lender is responsible for²⁷.

Who provides these services in the UK

Advice is delivered by FCA-regulated firms on the Financial Services Register⁹. Advisers work as independent or restricted, and must disclose which before you engage them³. Discretionary management is provided by firms permitted to make investment decisions on a client's behalf, and the FCA rules recognise the arrangement where a discretionary investment manager or financial adviser has permission to execute investment decisions covering more than 50% of a drawdown fund¹⁰. Execution-only services are provided by platforms and firms that transact on instruction, with the disclosure duties described above⁷.

Free and impartial help exists alongside the regulated market. The Pensions Advisory Service and similar guidance bodies give information rather than personal recommendations, and Northern Ireland residents can get information and help with pensions through nidirect²⁸. For a broader map of the market, see how investment platforms work and digital investment services and robo-advisers.